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Court finds that an LMSA for future medicals is not necessary as part of the parties’ liability settlement

With CMS’s future medicals proposals now scheduled for release this month, the latest case highlighting the issues that parties continue to face regarding the liability Medicare set-aside (LMSA) question has surfaced in a new case styled as Stillwell v. State Farm, et. al., 2021 WL 4427081 (M.D. Fla., September 27, 2021). 

New Case Highlights How Lmsa Issues And Questions Continue To Complicate Liability Claim Settlements

In Stillwell, a dispute arose regarding whether an LMSA, or some other "future medicals" funding mechanism, needed to be included as part of a liability settlement to cover the plaintiff's post-settlement accident-related medical services and whether the settlement needed to cover the plaintiff's projected future medical expenses.

The court ultimately found, in part, no law imposed a substantive duty to settle a personal injury claim for an amount that covers future medical expenses.[1]  Further, the court declined to impart any legal duty on primary payers settling with a Medicare beneficiary to include amounts for future medicals. The court also noted that the question of regulating future medicals for liability settlements (e.g. the LMSA question) was "exclusively either an executive or legislative prerogative," which included CMS's ability to promulgate formal rules to protect Medicare's interests as part of liability settlements, if they so elect.[2]

In the bigger picture, many are hoping that CMS's forthcoming "future medicals" proposals – which are expected to focus heavily on liability claims – will help alleviate the type of issues, disputes, and litigation that continue to arise in cases like Stillwell. On this point, a court from another jurisdiction recently recognized the frustration CMS's lack of guidance is generating remarking that "[t]he uncertainty created by CMS' repeated failure to clarify its position on requiring MSAs in personal injury settlements generally and in specific cases is proving burdensome to the settlement process.[3]  From another angle, the Stillwell decision is the latest court ruling questioning, or rejecting, the notion that LMSAs are "required" as part of liability settlements under current MSP statutory or regulatory provisions.[4]   

With this backdrop set, the author breaks down the Stillwell decision as follows: 

Case Summary

The plaintiff, William Stillwell, a Medicare beneficiary, injured his left leg in a slip and fall accident at his Indiana home. As a result of this accident, Mr. Stillwell, and his wife, sued the homeowners' association, the property management company, the landscaping company, and their insurers in Indiana state court. The parties reached a settlement for $200,000. However, the plaintiffs ultimately refused to execute the settlement agreement claiming that the agreed upon amount did not adequately cover the plaintiff's anticipated future medical expenses. The Indiana trial court issued an order enforcing the settlement, affirmed by the Indiana Court of Appeals. 

The plaintiffs then filed a False Claims Act (FCA) lawsuit against the insurers in the United States District Court for the Middle District of Florida claiming, in part, that parties settling liability claims must consider Medicare's interests by (1) creating an LMSA, (2) segregating part of the settlement for future medical expenses, (3) paying part of the settlement into the Medicare Trust Fund, or (4) proposing to CMS an alternative plan.[5]  Further, the plaintiffs alleged that by failing to discharge their duty as purported primary payers for Mr. Stillwell's medical expenses, the insurers caused Mr. Stillwell's doctors to falsely bill Medicare for Mr. Stillwell's post-settlement medical expenses thereby allegedly defrauding the government and injuring the plaintiffs.[6]

The court, however, rejected the plaintiffs' arguments finding, in part, that "no law (statutory, regulatory, or otherwise)" imposed a substantive duty to settle a personal injury claim for an amount that covers future medical expenses, and it declined to impart any legal duty on insurers settling with a Medicare beneficiary to include amounts for future medicals.[7]  As part of its analysis, the court also indicated that the issue of regulating future medicals as part of liability claim settlements is "exclusively either an executive or legislative prerogative." [8]  Further, the court noted that "CMS can protect Medicare's interest by promulgating — as CMS has promulgated for workers' compensation — either a rule regulating a liability settlement or a mechanism for approving a proposed liability settlement. But CMS has not." [9]   The court also found that the insurers had not otherwise engaged in conduct warranting FCA liability. Accordingly, the court dismissed the plaintiffs' action (with prejudice) and instructed the clerk to close the case.

For those interested in a more detailed review of this case and bigger claims considerations, the following is overview is presented:

Facts 

In December 2010, Plaintiff William Stilwell, sustained injuries to his left leg when he slipped outside his home in Indiana.[10] Mr. Stillwell's injury ultimately resulted in the partial amputation of his left leg. Mr. Stillwell and his wife, Penelope Stillwell ("plaintiffs"), brought a negligence suit against the homeowners' association, the property management company, and the landscaping company ("defendants") in Indiana state court.[11]

The plaintiffs reached a settlement in which the defendants and their insurers agreed, in part, to pay the plaintiffs $200,000, less any medical expense reimbursement, including Medicare conditional payments, to be paid directly by the insurers.[12]  In return, the plaintiffs agreed, in part, to release the defendants, become primarily responsible for any future medical expenses, and reimburse the plaintiffs' health care providers and insurers for services rendered before the settlement from the settlement proceeds.[13]

However, the plaintiffs ultimately refused to execute the settlement documents claiming that the settlement amount of $200,000 was insufficient to cover Mr. Stillwell's future medical expenses (which they claimed would exceed $700,000) and, as a result, the insurers were improperly shifting the burden of Mr. Stillwell's future medical expenses to Medicare.[14]

One of the insurer defendants then moved to enforce the settlement which the Indiana trial court granted.[15]  The enforcement order incorporated the revised joint release presented to the Stillwells and specifically discharged the insurers from any claims "which have resulted or may in the future develop from [William's accident]" and holds the Stillwells "jointly and severally liable" to pay any present or future medical expense.[16] The plaintiffs then appealed to the Indiana Court of Appeals which affirmed the trial court's ruling.[17] They then appealed to the Indiana Supreme Court and the United States Supreme Court which declined discretionary review.[18]

Plaintiffs sue insurers arguing that "future medicals" must be covered as part of their settlement 

Shortly after the Indiana trial court's order enforcing the settlement, the plaintiffs filed a qui tam action against the insurers under the federal False Claims Act (FCA) (31 U.S.C. § 3729, et. seq.)[19] in United States District Court for the Middle District Florida. The United States declined to intervene in the plaintiffs' FCA action.[20]  

As part of the plaintiffs' FCA lawsuit, the plaintiffs essentially claimed that the insurers, by failing to either settle for an amount exceeding the expected medicals expenses, or to provide in the settlement some other mechanism to pay future medical expenses, failed to discharge their primary-payer responsibility and remained primary payers for post-settlement medical expenses.[21]   In addition, the plaintiffs alleged that the insurers failed to properly report the claim to CMS under the Section 111 reporting system which caused Mr. Stillwell's doctors to falsely bill Medicare, instead of the insurers, as primary for Mr. Stillwell's post-settlement medical expenses[22] and, in doing so, the insurers allegedly defrauded the government and injured the plaintiffs.[23]

Court finds that an LMSA (or other "future medicals" funding mechanism) was not required as part of the settlement

Although the plaintiffs conceded that no law or regulation requires a liability insurer settling a personal injury claim to create an LMSA to cover future medical expenses, they contended that a settling party must consider Medicare's interests by: "(1) creating a [LMSA], (2) segregating part of the settlement for future medical expenses, (3) paying part of the settlement into the Medicare Trust Fund, or (4) proposing to CMS an alternative plan." [24] In this regard, the plaintiffs argued that the settlement failed to protect Medicare's interests because during the settlement negotiations the parties expected that Mr. Stillwell's future medical expenses would exceed the settlement.[25]

However, the court rejected these arguments noting the plaintiffs "fail[ed] to identify any source of law requiring that a settlement with a Medicare beneficiary include any of those mechanisms." [26] Further, the court noted that while the plaintiffs suggested mechanisms contemplated partitioning part of the settlement proceeds for future medicals, they were also free to use the entire settlement to satisfy Medicare's interests if they so elected.[27]

In addition, and perhaps significantly, the court declined to impart any legal duty on insurers settling with a Medicare beneficiary to include amounts for future medicals, noting that while there is a federal regulation addressing Medicare's future interests in workers' compensation settlements, no similar provision exists regarding liability claims and that no law imposed a duty to settle a personal injury claim for an amount that covered future medicals.[28] 

On these points, the court stated: 

To the extent that [the plaintiffs invite] the judicial imposition of a legal duty on primary payers to settle with a Medicare beneficiary for an amount that covers expected future medical expenses, that invitation is declined. Although CMS prescribes in 42 C.F.R. § 411.46(b)(2) a standard for voiding a workers' compensation settlement that fails to cover expected medical expenses, no similar standard exists to escape a settlement in a personal injury action. And, although a September 2011 CMS "policy memo" declares that all parties negotiating a personal injury settlement with a Medicare beneficiary have an amorphous duty to "protect Medicare interests," no law (statutory, regulatory, or otherwise) imposes a substantive duty to settle a personal injury claim for an amount that covers future medical expenses. Sipler v. Trans Am Trucking, 881 F. Supp. 2d 635, 638 (D.N.J. 2012). Without a law from the legislative or executive branches, the policy favoring settlement of personal injury claims militates decisively against either creating a new standard to review a final settlement or imposing a new duty on a settling party. See Sipler at 638–39 (citing Mcdermott, Inc. v. AmClyde, 511 U.S. 202, 215 (1994)). Stillwell, 2021 WL 4427081, at *5.

Further, the court opined that the issue of regulating future medicals as part of liability claims "is exclusively either an executive or legislative prerogative" stating more fully as follows: 

This invitation to the judiciary to impose an otherwise inapplicable standard onto CMS's ample regulatory regime warrants rejection. First, CMS can protect Medicare's interest by promulgating — as CMS has promulgated for workers' compensation — either a rule regulating a liability settlement or a mechanism for approving a proposed liability settlement. But CMS has not. Establishment of a rule or approval mechanism is exclusively either an executive or legislative prerogative. Further, the proposed standard contravenes judicial policy encouraging settlement unless the law requires some restriction (such as, the limit on the ability to settle an FLSA claim). Stillwell, 2021 WL 4427081, at *1.

Court rejects plaintiffs' claims that the insurers failed to report the settlement to Medicare properly

The court also rejected the plaintiffs' argument that the insurers failed to properly report the claim and settlement as part of CMS's total payment obligation to the claimant (TPOC) and on-going responsibility for medicals (ORM) Section 111 reporting triggers finding that plaintiffs failed to sufficiently support these claims.   

In reaching this conclusion, the court noted, in part, that the fact that CMS had sent certain correspondence to the plaintiffs regarding their Medicare's conditional payment interests "demonstrates that CMS knew the amount of both the settlement and [plaintiffs' attorney's fees] by December 2016, six months before the Indiana trial court enforced the settlement." [29]  Likewise, the court noted that reporting under the ORM trigger was not applicable in this case based on the facts. Specifically, the court concluded that "under the current CMS regime, the [plaintiffs] became liable for future medical expenses after receiving the settlement, and the settlement enforced by the Indiana trial court released the insurers from "all claims...which have resulted or may develop in the future from [William's accident]. Because the Stillwell's, not the insurers, retain the primary responsibility to pay [Mr. Stillwell's] future medical expenses until the Stillwell's exhaust the settlement proceeds, the insurers had no ORM to report." [30]

Court dismisses the plaintiffs' False Claims Act (FCA) allegations

The plaintiffs also alleged that the insurers' alleged failure to properly report a primary-payer responsibility caused Mr. Stillwell's healthcare to submit false claims and make false statements and that since this was a foreseeable result of the insurers' failure to report its responsibility to Medicare they were liable under the FCA.[31]  

However, the court rejected this argument, noting that to sustain an FCA claim on the theory that a defendant causes a third party to present a false claim or to make a false statement, "a plaintiff must plead both (1) that the defendant's conduct was a substantial factor inducing the claim's or the statement's submission and (2) that the submission was reasonably foreseeable." [32]  In dismissing the plaintiffs' FCA claim, the court noted that the plaintiffs "identifi[ed] no conduct by the insurers directing or inducing a healthcare provider to file a false claim with Medicare or to convey, either implicitly or explicitly, that Medicare was the primary payer on a claim. Although failing to report a primary-payer responsibility might result in a false claim or statement by a third party, [the plaintiffs fail] to allege a claim based on the insurers' causing a provider to file a false claim or statement, and she cannot sustain the FCA claims." [33]

Based on the foregoing reasoning, the court granted the defendants' motion to dismiss with prejudice and directed the clerk to enter a final judgment to close the case.[34]

Questions?

Please feel free to contact the author if you have any questions regarding the information discussed above. Also, for a broader overview of the current LMSA issues and questions, see the author's recent article Liability Medicare Set Asides – Bracing for the storm.  


[1] Stillwell, 2021 WL 4427081, at *5. 

[2] Id. at *1.

[3]  Silva v Burwell, 2017 WL 5891753 (D. N.M. 2017).

[4] See e.g., Sipler v. Trans Am Trucking, Inc., 881 F. Supp. 2d 635 (D. N.J. 2012); Bruton v. Carnival Corporation, 2012 WL 1627729 (S.D. Fla. 2012); Silva v Burwell, 2017 WL 5891753 (D. N.M. 2017); Silva v Burwell, 2017 WL 5891753 (D. N.M. 2017); and Abate v. Wal-Mart Stores East, L.P. 2020 WL 7027481 (W.D. Pa. November 30, 2020).  For those interested, see the authors articles on the Silva and Burwell decisions. 

[5] Stillwell, 2021 WL 4427081, at *4.

[6] Id. at *3.

[7]  Id. at *5.

[8] Id. at *1.

[9]  Id.

[10] Id. at *2.

[11] Id. at *2.  (M.D. Fla., September 27, 2021).  It is noted that in April 2020 (approximately ten years post-accident), after Mr. Stillwell’s death, his wife, Penelope Stillwell, filed a second and third amendment complaint suing on behalf of herself, Mr. Stillwell’s estate, and the United States. Id. at *3.  In this regard, the court in certain parts of its decision refers to the plaintiffs as the “Stillwells” and in other parts as “Penelope.”  For purposes of this article, to avoid any confusion, the author simply uses “plaintiffs,” unless a particular factual point necessitates a specific reference to Mr. Stillwell or Penelope Stillwell.

[12] Stillwell, 2021 WL 4427081, at *2.

[13] Id.

[14] Id. at *1.

[15]  Id. at *2.

[16] Id.

[17] Id.

[18] Id.

[19] Id. at *3.  Click here to review the provisions of 31 U.S.C. § 3729 of the FCA.

The court’s decision also references that the plaintiffs sued under the Medicare Secondary Payer (MSP) Act, although no specific MSP section was referenced, and no reference was made to the related allegations as part of the court’s discussion. Stillwell, 2021 WL 4427081, at *1.  From the author’s review of the plaintiffs’ Third Amended Complaint, the plaintiffs sued under the MSP’s private cause action provision (42 U.S.C. § 1395y(b)(3)(A)) alleging that the defendants failed to properly provide primary payment or reimburse certain accident-related medical bills related to Mr. Stillwell’s treatment.  The court’s decision in this case focused on the plaintiffs’ False Claims Act allegations and did not contain any specific discussion regarding the plaintiffs’ private cause of action claim. 

[20] Stillwell, 2021 WL 4427081, at *3. 

[21] Stillwell, 2021 WL 4427081, at *1.

[22] Id. at *1.

[23] Id. at *2.

[24] Id. at *5.

[25] Id.

[26] Id.

[27] Id.

[28] Id.

[29] Id. at *4.  For a review of CMS’s Section 111 reporting process and reporting triggers, see the author’s recent article Revisiting Medicare’s Section 111 Reporting Law: How It Works and Impacts WC Claims.  

[30] Stillwell, 2021 WL 4427081, at *6.

[31] Id.

[32] Id.  citing, Ruckh v. Salus Rehab., LLC, 963 F.3d 1089, 1107 (11th Cir. 2020).  On this point, the court rejected the authority cited by the plaintiffs stating as follows:

Penelope cites four decisions to illustrate how a defendant who causes a third party to submit to CMS a false claim or statement becomes liable under the FCA. (Doc. 120 at 19–21) In one of the decisions, United States ex rel. Sharp v. E. Okla. Orthopedic Ctr., 2009 WL 499375 (N.D. Okla. Feb. 27, 2009), the defendant submitted false claims to CMS directly, without involvement by a third party. Each of the other three decisions emphasizes that, if a defendant does not submit a claim or statement to CMS directly, the defendant only becomes liable under the FCA by directing or inducing a third party to submit a false claim or statement. United States ex rel. Drescher v. Highmark, Inc., 305 F. Supp. 2d 451, 460 (E.D. Pa. 2004) (denying the defendant’s motion to dismiss to determine the extent to which the defendant directs healthcare providers to submit denied claims to Medicare); United States ex rel. St. Joseph’s Hosp., Inc. v. United Distributors, Inc., 2015 WL 8207477, at *7 (S.D. Ga. Dec. 7, 2015) (denying an insurer’s motion for summary judgment after the insurer told healthcare providers to submit claims to Medicare); Negron v. Progressive Cas. Ins. Co., 2016 WL 796888, at *6 (D.N.J. Mar. 1, 2016) (denying the insurer’s motion to dismiss after the insurer told healthcare providers to submit claims to Medicare).

[33] Stillwell, 2021 WL 4427081, at *7.

[34] Id.


Mark Popolizio, J.D.

Mark Popolizio, J.D., is vice president of MSP compliance at ISO Claims Partners, a Verisk business. You can contact Mark at mpopolizio@verisk.com.


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